While many investors are trying to guess the next $10 billion deal, they may be missing out on hundreds of less flashy but profitable M&As.
It has, in many ways, been a record year for company moves of all sorts. In its 2022 M&A outlook report released on Thursday, PwC found that 2021 saw 99 deals above $5 billion — a steep increase compared to 54 in 2020, 59 in 2019 and 70 in 2018.
But an even more interesting statistic is that, while in a typical year there is somewhere between 400 and 500 deals worth from $500 to $5 billion, there have already been more than 900 before the report's cut-off point of Nov. 15.
John Potter, PwC’s U.S. deals sector leader, told The Street that the coming years will see a combination of big and small deals across all segments of the economy.
"Whether you're looking at the large buyout or a company investing in a product that complements its core category, the deals that we're seeing today and will continue to see in 2022 are a combination of big and small," Potter said. "One deal alone will often not deliver the outcomes the shareholders and management are looking to attain."
Consolidation and growth remains a key driving force — usually, a larger company acquires a smaller one to expand the range of products that they offer.
According to Potter and the report, 2021 also saw more and more companies whose core product is outside of technology investing in tech.
Fintech as well as data analytics that provide statistical information about buyer demographics are two key products that many traditional companies looked for this year.
Private equity funds made up 37% of all U.S. deal volume until Nov. 15, up 28% in all of 2019. With 2,351 deals worth $197.5 billion, the technology sector led in both volume and value of deals.
Consumer markets saw the next biggest number of deals at 759, while media and telecom brought in the second most value at $74.6 billion.
"The businesses that were naturally exchanges or retailers or product companies recognize that technology is a key component of their business models and as a product," Potter said. "You're seeing that convergence in both directions."
According to Potter, environmental, social and governance (ESG) criteria is playing more and more of a role on a deal's value, as both corporate and private investors consider how poor track records on environmental or labor issues could affect the company's future.
PwC found that 79% of global investors named ESG as an important factor in their decision-making.
Despite the initial fear that the pandemic and a potential recession could offset the economy, 2021 has been a record year for M&As, with many choosing the time to make moves that had been previously put off.
Potter predicts that such an accelerated pace will continue into 2022 and beyond.
"Companies that were able to make these complex decisions are better positioned today than their competitors," Potter said. "I think we're going to see that play out further. Anyone can change relative performance and make the moves that are going to enable that but the competition for those quality assets, those investments that will drive accelerating change, are going to be key to [a company's] medium-term success."